US data point to stronger economic growth

US economic reporting ends the year on an optimistic note. Reuters reports:

Upbeat U.S. data on the jobs market and manufacturing sector Thursday buttressed the view the economy gained momentum as the year ended, setting the stage for a stronger performance in 2011.

New applications for unemployment benefits dropped 34,000 last week to 388,000, the lowest level since July 2008...

The Institute for Supply Management-Chicago's business barometer for the Midwest provided an even more bullish signal.

It jumped to 68.6, the highest since July 1988, from 62.5 in November. Economists had expected it to dip. Any reading above 50 indicates the region's economy is expanding...

In a third report, the National Association of Realtors said its pending home sales index, which is based on signed contracts to buy previously owned houses, rose 3.5 percent last month to 92.2. It was the second straight month of gains and beat market expectations for a 2 percent increase.

US consumer confidence down, holiday spending up

US consumer confidence fell in December, according to the Conference Board. Bloomberg reports:

Confidence among U.S. consumers unexpectedly fell in December, restrained by concern that jobs will remain scarce in 2011.

The Conference Board’s confidence index unexpectedly fell to 52.5, lower than the most pessimistic forecast of economists surveyed by Bloomberg News, figures from the New York-based research group showed today...

The loss of confidence is at odds with a report from the University of Michigan that showed sentiment improved to a six- month high in December, and with data showing holiday spending posted the biggest gain in five years...

Retailers’ 2010 holiday sales jumped 5.5 percent for the best performance since 2005, said MasterCard Advisors’ SpendingPulse, which measures retail sales by all payment forms. That compared with a 4.1 percent gain a year earlier. The numbers include Internet sales and exclude automobile purchases.

Meanwhile, home prices have also been falling.

The S&P/Case-Shiller index of property values fell 0.8 percent in October from the same month in 2009, the biggest year-over-year decline since December of last year, the group said today. The decrease exceeded the 0.2 percent drop projected by the median forecast of economists surveyed...

The home-price gauge fell 1 percent in October from the prior month after adjusting for seasonal variations, matching September’s drop which was larger than previously estimated.

Japanese industrial production resumes recovery

The recent spate of negative data from Japan may have come to an end, based on data released today.

The Ministry of Economy, Trade and Industry reported today that industrial production rose 1.0 percent in November. This was the first increase in six months.

The rebound in industrial production is likely to be sustained in coming months. According to the findings of a ministry survey accompanying the industrial production report, manufacturers said they plan to increase output by 3.4 percent in December and 3.7 percent in January.

The industrial production data corroborates the recovery suggested by trade data last week. Last Wednesday, the Ministry of Finance had released data showing that exports grew 9.1 percent in November from a year earlier, accelerating from 7.8 percent the month before and ending a run of eight consecutive months of decelerating export growth.

Reports released in Japan today by the Statistics Bureau were not as positive though.

The Statistics Bureau reported that consumer prices in Japan rose 0.1 percent in November from a year ago. This was the second consecutive month that the inflation rate has been positive.

Excluding fresh food, however, prices were down 0.5 percent from a year ago, maintaining the negative trend. Excluding both food and energy, prices were down 0.9 percent.

Meanwhile, consumer spending remains depressed, with household spending falling 0.4 percent in real terms in November from a year ago, the same rate as in October.

Household income, though, rose 0.5 percent in real terms, the fourth consecutive year-on-year rise, and the unemployment rate held steady at 5.1 percent in November.

So on the whole, the latest economic data from Japan indicate that the economic recovery may still be intact.

China raises interest rates

This was not exactly the present that investors were looking forward to on Christmas Day. From AFP/CNA:

China's central bank on Saturday raised interest rates for the second time in less than three months as authorities ramp up efforts to curb borrowing, rein in property prices and tame inflation.

The People's Bank of China said in a brief one-line statement that it will raise the one-year lending and deposit rates by 25 basis points each. The move takes the rates to 5.81 percent and 2.75 percent respectively from Sunday.

China's leadership have expressed confidence that they can tame inflation. From AFP/CNA on Sunday:

China is well-placed to tackle inflation and tame runaway house prices, Premier Wen Jiabao said on Sunday, while acknowledging that rising costs had made life harder for the poor...

Speaking on China National Radio Wen said: "The recent rise in prices across China has actually made life even more difficult for people on low and medium incomes."

But he stressed that thanks to government intervention "we are fully able to control the general level of prices".

Andy Xie thinks that China's inflation is one of the two things that can trigger the next global crisis.

The most likely candidates to trigger the next global crisis are the U.S.'s sovereign debt or China's inflation... China must tackle its inflation problem, which is ultimately a political and structural issue, in 2011...

The ineffectiveness of the recent measures casts doubts on the government's sincerity in fighting inflation. The constant and marginal policy announcements could be interpreted that the inflation fighting is now largely a propaganda job. Such perceptions could spark popular panic, which would cause the household sector to hoard goods like rice and cooking oil. When the masses flee from holding money, a full blown crisis will unfold.

I have been arguing for increasing interest rates. That won't cure inflation either. It is meant to compensate depositors to sustain the value of their wealth...

Only when property prices drop sharply can we believe that the government is serious about fighting inflation. The level of property prices defines how much local governments can spend. Fighting the property bubble is a must for fighting inflation. As long as property price remains elevated, fighting inflation must be a show only.

US consumer spending rises, Portugal and Hungary's ratings cut

US economic data on Thursday were mostly positive. Bloomberg reports:

Americans increased spending in November for a fifth straight month and companies stepped up orders for equipment, more evidence the U.S. economy is gaining momentum heading into 2011.

Household purchases rose 0.4 percent after a 0.7 percent increase in October that was almost twice as large as previously estimated, figures from the Commerce Department showed today in Washington. The agency also reported a 2.6 percent gain in bookings for capital goods like computers and electronics...

First-time filings for jobless insurance declined by 3,000 to 420,000 in the week ended Dec. 18, matching the median forecast in a Bloomberg News survey, according to Labor Department figures released today.

Another report today showed a measure of consumer confidence climbed to a six-month high in December. The Thomson Reuters/University of Michigan final index of consumer sentiment rose to 74.5, matching the median estimate in a Bloomberg survey, from 71.6 in November. The preliminary December reading was 74.2...

Housing remains a weak spot for the economy as an overhang of unsold properties weighs on the market. Purchases of existing homes increased 5.5 percent to a 290,000 annual rate from a 275,000 pace in October that was slower than previously estimated, the Commerce Department said today. The median forecast of economists surveyed by Bloomberg projected a 300,000 pace...

Inflation remained below the Fed’s comfort zone. The central bank’s preferred price measure, which excludes food and fuel, rose 0.1 percent from the prior month and was up 0.8 percent from a year earlier, matching October’s 12-month gain as the smallest on record...

Today’s durable goods report from the Commerce Department showed that total orders dropped 1.3 percent, depressed by volatile demand for aircraft, and bookings excluding transportation equipment rose more than forecast.

Meanwhile, however, Europe continues to be a source of sovereign debt concerns.

Bloomberg reports that Portugal's debt rating has been downgraded by Fitch.

Portugal’s debt rating was downgraded one level by Fitch Ratings, which cited concern about the “financing environment” for the government and the country’s banks, as well as the economy’s outlook.

The long-term foreign and local currency issuer default rating was lowered to A+, the fifth-highest level, from AA-, Fitch said in a statement today. The outlook is negative. Fitch on March 24 cut the rating by one step to AA-.

So has Hungary's.

Hungary had its credit rating cut to the lowest investment grade by Fitch Ratings, which joined Moody’s Investors Service and Standard & Poor’s in questioning the sustainability of the new Cabinet’s fiscal policy.

Fitch downgraded Hungary one step to BBB-, the company said in a statement from London. The outlook for all three ratings companies is negative, which means they are more likely to reduce the rating to junk than to raise it or keep it unchanged.

UK and US third quarter growth revised

UK third quarter GDP growth has been revised downwards. Reuters reports:

Economic growth figures so far this year have been revised slightly lower and 2011 may see a sharper slowdown due to government spending cuts, with the Bank of England also increasingly worried about inflation.

The Office for National Statistics revised down third quarter growth to 0.7 percent from 0.8 percent and said growth in the first two quarters of the year was also slightly weaker than previously reported.

In contrast, US third quarter GDP growth has been revised upwards but Wednesday's economic data on the whole were disappointing. Bloomberg reports:

The U.S. economy grew less than forecast in the third quarter and inflation unexpectedly cooled, highlighting why the Federal Reserve plans to keep pumping money into financial markets.

The revised 2.6 percent increase in gross domestic product compares with a 2.5 percent estimate issued last month and was less than the median forecast of a 2.8 percent in a Bloomberg News survey, a Commerce Department report showed today. Consumer costs for goods and services, excluding food and fuel, climbed at the slowest pace since records began in 1959...

A report today from the National Association of Realtors showed sales of existing homes rose less than forecast in November as the industry that triggered the worst recession in seven decades struggled to recover after a government tax credit ended.

Purchases increased 5.6 percent from the prior month to a 4.68 million annual rate. Economists projected sales would rise to a 4.75 million pace, according to the median forecast in a Bloomberg survey.

BoJ keeps rate unchanged, Japanese exports accelerate

The Bank of Japan left its official interest rate unchanged on Tuesday. AFP/CNA reports:

Japan's central bank on Tuesday kept its key rate unchanged as it said it would continue measures to boost the faltering economy amid fears of a looming slowdown.

The board made a unanimous decision to keep the key rate at between zero and 0.1 percent after a two-day meeting, warning that a fragile recovery from deep recession was "pausing" despite showing "signs of a moderate recovery".

While the BoJ describes the recovery as "pausing", November trade data released today did show an acceleration in exports. Bloomberg reports:

Japan’s export growth accelerated for the first time in nine months as a rebound in global demand helped the nation’s economy withstand an advance in the yen.

Overseas shipments increased 9.1 percent in November from a year earlier, compared with October’s 7.8 percent, the Finance Ministry said in Tokyo today. The median estimate of 19 economists surveyed by Bloomberg News was for a 10.3 percent gain.

US economy slows, Hungary raises interest rate

The Chicago Fed reports that US economic activity slowed in November.

Led by declines in employment-related indicators, the Chicago Fed National Activity Index decreased to –0.46 in November from –0.25 in October. Three of the four broad categories of indicators that make up the index deteriorated from October to November, with only the production and income category improving.

The index’s three-month moving average, CFNAI-MA3, ticked up to –0.41 in November from –0.42 in October. November’s CFNAI-MA3 suggests that growth in national economic activity was below its historical trend. With regard to inflation, the amount of economic slack reflected in the CFNAI-MA3 suggests subdued inflationary pressure from economic activity over the coming year.

There were mixed reports from the UK. Consumer confidence was steady in December, mortgage lending fell last month to the lowest for a November since 2000 but mortgage approvals rose.

Europe's sovereign debt problem, though, continues to be the main source of concern for investors as contagion remains a risk. From Bloomberg:

France risks losing its top AAA grade as Europe’s debt crisis prompts a wave of downgrades that threatens to engulf the region’s highest-rated borrowers, with Belgium also facing a possible cut...

Costs to insure French government debt trebled this year, rising to an all-time high of 105.5 basis points today, according to data provider CMA...

The credit default swaps tied to the French bonds imply a rating of Baa1, seven steps below its actual top ranking of Aaa at Moody’s, according to the New York-based firm’s capital markets research group.

Contracts on Portugal imply a B2 rating, 10 levels below its A1 grade, while swaps tied to Spanish bonds trade at Ba3, 11 steps below its Aa1 ranking, data from the Moody’s research group show. Derivatives protecting Belgian debt imply a rating of Ba1, nine steps below its current rating of Aa1.

And yet, Hungary, not exactly immune to the debt crisis, saw an interest rate hike on Monday. Bloomberg reports:

Hungary’s central bank increased the main interest rate for a second month on concern that inflation will accelerate as policy makers defied Prime Minister Viktor Orban’s calls for lower borrowing costs to protect growth.

The Magyar Nemzeti Bank raised the benchmark two-week interest rate to 5.75 percent from 5.5 percent after a surprise increase last month, the first since 2008. The decision was “near-unanimous,” central bank President Andras Simor said. Eleven of 23 analysts predicted the move in a Bloomberg survey.

Optimism about economy increases

A fund managers survey has shown that investors have become more optimistic about the economy. Positive economic reports published last week probably added to the optimism.

Results of the Bank of America Merrill Lynch's December fund managers survey released last week show that investors are optimistic about the economy, with a net 44 percent of respondents expecting the world economy to strengthen in 2011, up from 35 percent the previous month. In line with this optimism, 40 percent of fund managers were overweight equities while 47 percent were underweight bonds.

The Organisation for Economic Co-operation and Development provided a reason for continued optimism about the global economy last week. It reported last Monday that its composite leading indicator for member countries rose to 102.6 in October from 102.5 in September after having been stagnant over the previous few months. It said that this suggests "a stabilisation in the pace of expansion across the OECD".

In the United States, reports last week showed that the economy continues to grow briskly. Retail sales rose 0.8 percent in November while industrial production rose 0.4 percent.

And growth is likely to be sustained for at least the next few months. The Conference Board's index of leading indicators for the US economy rose 1.1 percent in November. The Economic Cycle Research Institute's weekly leading index rose to 127.4 in the week ending 10 December while its rate of growth, which had plunged below minus 11 percent in July, rose to minus 0.1 percent.

The euro area is also continuing to grow. Markit's flash composite purchasing managers index fell to 55.0 in December from 55.5 in November but stayed comfortably above the 50 mark, indicating growth. The manufacturing PMI rose to 56.8 from 55.3 but the services PMI fell to 53.7 from 55.4.

Japan is the only one among the largest developed economies where growth appears to be stalling. Data released today by the Cabinet Office show that the composite coincident index fell to 100.8 in October from 102.1 in September. Growth in coming months is likely to stay weak with the composite leading index falling to 97.7 from 99.1.

Not surprising then that the BofA Merrill Lynch survey showed that 13 percent of fund managers were underweight the country. This, though, still marked an improvement over November when 29 percent were underweight.

US leading index, German and French business confidence improve

It looks like US economic growth will be sustained in the months ahead. From Reuters:

The U.S. economy is gathering steam as the year draws to a close, boosting optimism about prospects in 2011, according to measures published by two separate economic research firms on Friday.

The Conference Board's measure of leading economic indicators jumped 1.1 percent in November, the biggest rise since March and the fifth straight monthly gain.

Separately, the Economic Cycle Research Institute said its gauge of future growth rose to its highest level since May.

And although Europe's sovereign debt problems persist, with Moody's cutting Ireland's credit rating on Friday, optimism remains in Europe.

Bloomberg reports that business confidence rose in Germany in December.

German business confidence unexpectedly rose to a record in December as stronger domestic demand helped bolster the recovery in Europe’s largest economy.

The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, increased to 109.9 from 109.3 in November. That’s the highest since records for a reunified Germany began in 1991. Economists predicted a drop to 109, the median of 36 forecasts in a Bloomberg News survey shows.

French business confidence also rose in December. Again from Bloomberg:

French business confidence rose this month as an improved job outlook and investment helped lift domestic demand after last year’s recession.

An index of sentiment among factory executives increased to 103 from 100 in November, national statistics office Insee said today. Economists expected a reading of 102, according to the median of 15 forecasts gathered in a Bloomberg News survey.

US and eurozone economies report positive data

Reuters reported better data for the US economy on Thursday.

Initial claims for state unemployment benefits fell 3,000 to 420,000, the Labor Department said, in line with forecasts and a recent downward trend. The closely watched four-week moving average of claims dropped for a sixth straight week to a fresh two-year low.

In a separate report, the Philadelphia Federal Reserve Bank said its business activity index rose to 24.3, the highest level since April 2005, from 22.5 in November. Economists had expected a reading of 15.0. Any reading above zero indicates expansion in the region's manufacturing output...

In another report on Thursday, the Commerce Department said housing starts rose 3.9 percent to an annual rate of 555,000 units in November. However, permits for future home construction dropped to a 1-1/2-year low.

Eurozone data on Thursday were also positive on the whole. Again from Reuters:

Europe's two-speed recovery is becoming more entrenched, with Germany's private sector powering ahead and France making headway while the rest of the euro zone is close to running out of steam, surveys showed on Thursday...

Markit's Eurozone Flash Services Purchasing Managers' Index, made up of surveys of around 2,000 businesses ranging from banks to restaurants, slumped to 53.7 in December from November's 55.4...

The flash manufacturing index rose to its highest level since April at 56.8 in December from 55.3 in November, confounding forecasts for a fall to 55.2, while the output index bounced to 57.8 this month from 55.8 in November...

The euro zone composite index, compiled from the services and manufacturing sectors and often used to predict overall growth, dropped to 55.0 this month from 55.5 in November, missing expectations for 55.4.

The reports from the UK were mixed though, with retail sales growing 0.3 percent in November and pushing the annual growth rate to 1.1 percent, the strongest since July, but the Nationwide consumer confidence index falling 7 points to 45 in November, its fourth consecutive fall and the lowest since March 2009.

Japan's Tankan index falls, US industrial production increases

Japan's economic outlook is weak. From AFP/CNA:

Japanese business confidence has weakened for the first time in nearly two years, the Bank of Japan said Wednesday, with the economy hit by a soaring yen and global economic uncertainty.

The key quarterly Tankan survey showed that the sentiment index among major manufacturers dropped to "five" from "eight" in September, as global economic woes have sapped confidence, particularly of exporters.

But the economic recovery in the US appears to be back on track. From Bloomberg:

Industrial production in the U.S. increased more than forecast in November and consumer prices slowed, indicating the recovery is gaining momentum without generating inflation.

Output at factories, mines and utilities rose 0.4 percent, the biggest gain since July, after a revised 0.2 percent drop in October, a Federal Reserve report showed today in Washington. The consumer-price index climbed 0.1 percent in November after a 0.2 percent gain the prior month, the Labor Department said...

Confidence among U.S. homebuilders was unchanged in December from a month earlier, indicating residential construction will stay near depressed levels, a National Association of Home Builders/Wells Fargo’s index showed today.

Europe's economic prospects depend much on sovereign debt issues, and the news on Wednesday was not helpful. From Bloomberg:

Spain’s credit rating may be cut from Aa1, Moody’s Investors Service said, as the government prepares its final bond sale of the year tomorrow amid concern it may follow Greece and Ireland in seeking a bailout.

Spain has to raise 170 billion euros ($226 billion) next year, while refinancing needs for its regions total 30 billion euros and for banks around 90 billion euros, Moody’s estimates.

“Spain’s substantial funding requirements, not only for the sovereign but also for the regional governments and the banks, make the country susceptible to further episodes of funding stress,” Kathrin Muehlbronner, an analyst at Moody’s, said in a report today.

Still, Sweden's central bank was confident enough about the economy to raise interest rates again on Wednesday. Bloomberg reports:

Sweden’s central bank raised its benchmark repo rate for a fourth time since July and repeated a forecast for more increases as policy makers try to steer the European Union’s fastest recovery and curb household borrowing.

The Stockholm-based Riksbank raised the seven-day repo rate a quarter of a percentage point to 1.25 percent, it said today on its website. The decision was expected by 17 of 22 economists surveyed by Bloomberg. Five predicted no change.

US retail sales rise, UK inflation accelerates

Nothing new from the Federal Reserve on Tuesday. From Bloomberg:

Federal Reserve officials kept their plan to expand record monetary stimulus, saying the economic expansion hasn’t been strong enough to reduce joblessness...

Fed officials left their target for the federal funds rate, which covers overnight interbank loans, in a range of zero to 0.25 percent, marking two years of the policy. The central bank is likely to wait until the first quarter of 2012 to raise the rate, based on the median estimate in a Dec. 2-8 Bloomberg News survey of economists.

US economic data on Tuesday suggest little need for further stimulus. From Bloomberg:

Sales at U.S. retailers increased more than forecast in November and optimism among small businesses rose to a three-year high, signaling the economy was gaining momentum as the holiday season began.

The 0.8 percent gain in purchases followed a 1.7 percent jump in October that was larger than previously estimated, Commerce Department figures showed today in Washington. The National Federation of Independent Business’s sentiment gauge rose by 1.5 points to 93.2, the highest since December 2007, as more companies projected sales will grow...

A report from the Labor Department today also showed wholesale costs rose in November by the most in eight months, led by higher prices for gasoline, heating oil and fruit. The producer price index increased 0.8 percent from the prior month after a 0.4 percent rise.

The eurozone economy also looks like it has continued to grow. Bloomberg reports:

European industrial production increased in October led by orders for capital goods such as machinery and tools.

Output in the 16-nation euro region rose 0.7 percent from September, when it fell a revised 0.7 percent, the European Union’s statistics office in Luxembourg said. Economists had forecast a gain of 1.3 percent, the median of 32 estimates in a Bloomberg survey showed. Production increased 6.9 percent from a year earlier, after gaining 5.4 percent in September.

And in the UK, inflation continues to defy expectations for a decline. From Reuters:

Inflation rose to a six-month high in November, extending a run of upside surprises and denting lingering hopes of further monetary easing by the Bank of England.

Annual consumer price inflation rose to 3.3 percent last month from October's 3.2 percent, marking the 11th consecutive month it has been at least a percentage point above the Bank's 2 percent target.

If you can't meet an inflation target, you can always change the target. Another report from Reuters suggests that China's resolve in fighting inflation may be flagging.

China will set a 4 percent target for consumer inflation next year, up from this year's 3 percent objective, state television said on Tuesday, an indication that the government will desist from aggressive tightening even as price pressures mount.

The slightly higher threshold for inflation was consistent with another report in official media earlier in the day that China will aim to cap new loans at about 7.5 trillion yuan ($1.1 trillion) next year, a more generous ceiling than many in the market had been expecting.

Global growth stable

The OECD released its composite leading indicators for October on Monday.

OECD composite leading indicators (CLIs), designed to anticipate turning points in economic activity, suggest a stabilisation in the pace of expansion across the OECD.

Similar to last month’s assessment, growth prospects vary across major economies. But tentative signs of convergence in economic cycles are appearing in many countries. The October 2010 CLIs for the United States and China, and to a lesser extent France, show signs of improvement compared to last month, while the CLIs for Germany and Japan show moderation towards a stable pace of expansion. The CLI also continues to point to expansion in Russia.

OECD composite leading indicators
	Ratio to trend, amplitude adjusted					Change from previous month
	2010					2010
	Jun	Jul	Aug	Sep	Oct	Jun	Jul	Aug	Sep	Oct
OECD area	102.6	102.5	102.5	102.5	102.6	-0.1	-0.1	0.0	0.0	0.1
United States	102.0	101.9	101.9	102.0	102.3	-0.1	-0.1	0.0	0.1	0.3
Euro area	103.5	103.5	103.4	103.4	103.4	0.0	0.0	0.0	0.0	0.0
Japan	102.6	102.7	102.7	102.7	102.6	0.1	0.1	0.1	0.0	-0.1

China's inflation rate rises

China's inflation accelerated in November. AFP/CNA reports:

China said Saturday that inflation topped five per cent for the first time in more than two years, a figure analysts said would lead to fresh interest rate hikes as officials battle to curb price rises.

The country's consumer price index rose a faster-than-expected 5.1 percent year-on-year in November as food costs continued to soar, compared with 4.4 per cent in October, the National Bureau of Statistics said.

It was the fastest increase in consumer prices since July 2008, when inflation hit 6.3 per cent, and was well above the government's full-year target for three per cent.

In fact, the economy as a whole appears to be accelerating.

Other key data showed industrial output from China's factories rose 13.3 per cent on year, up from 13.1 per cent in October, even as Beijing closed highly polluting operators and rationed power to energy-intensive industries...

Fixed asset investment in urban areas, a measure of government spending on infrastructure, rose 24.9 per cent over the January-November period, slightly faster than the 24.4 per cent over the first 10 months of the year.

Retail sales, a key measure of consumer spending, jumped 18.7 per cent on year compared with 18.6 per cent in October.

China raises reserve requirement

There was no action from the Bank of England on Thursday but the People's Bank of China made a move on Friday. From AFP/CNA:

China's central bank said Friday it would raise the amount of money banks must keep in reserve as Beijing ramps up efforts to contain inflation, rampant lending and soaring housing costs.

The People's Bank of China said it would increase the bank reserve requirement ratio by 50 basis points, marking the sixth such move this year and highlighting the growing anxiety among top leaders over inflationary pressures.

The central bank said in a one-line statement on its website that the increase in the reserve ratio -- which effectively limits the amount of money banks can lend -- would be effective December 20.

The move came after data released earlier Friday showed property prices and new lending remained stubbornly high in November despite persistent government efforts to stem the flood of liquidity into the world's second-largest economy.

Also out from China on Friday was the November trade data. Again from AFP/CNA:

China said Friday that exports and imports hit record highs in November, which analysts said would ramp up pressure on Beijing for further interest rate hikes and a stronger currency...

Exports increased 34.9 percent in November from a year earlier to US$153.3 billion, while imports rose 37.7 percent to US$130.4 billion, according to the data.

US trade data were also out on Friday, as were consumer confidence. Bloomberg reports:

Confidence among U.S. consumers increased in December to a six-month high, coinciding with stronger holiday sales that show the economy is gathering speed.

The Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 74.2 from 71.6 at the end of November. A Commerce Department report showed the U.S. trade deficit shrank more than forecast in October to $38.7 billion as growing economies overseas propelled exports to a two-year high.

Japanese growth revised up

Japan's third quarter economic growth has been revised up. Reuters reports:

Japan's economy grew a revised 1.1 percent in July-September from the previous quarter, exceeding an initial government estimate, but that offered little comfort to policymakers wary of slowing growth in the current quarter...

The revised GDP translates into annualised growth of 4.5 percent, exceeding an initial reading of 3.9 percent and above the 4.1 percent rate expected by economists, due to upward revisions in capital spending and inventories.

But the outlook for the economy is weak. From AFP/CNA:

Fears that Japan's recovery is heading for further slowdown deepened Wednesday as data showed the nation's trade with the world rose only slightly and corporate spending fell in October...

The current account surplus -- the broadest measure of trade with the rest of the world -- widened 2.9 per cent in October from a year earlier to 1.44 trillion yen (17.20 billion dollars), missing expectations of a 7.0 per cent rise.

In September the surplus rose 24.3 per cent.

Other data from the finance ministry showed core private-sector machinery orders, a leading indicator of corporate capital spending, fell 1.4 per cent in October from the previous month, the second consecutive decline after a 10.3 per cent fall in September.

The data also missed expectations of a 0.1 per cent decline.

On a more positive note, results from the Economy Watchers Survey showed that the current conditions index rose 3.4 points to 43.6 in November, its first rise in four months.

Meanwhile, there was more evidence on Wednesday that UK manufacturing is doing well. From Reuters:

The Confederation of British Industry survey's total order book balance unexpectedly jumped this month to -3 from -15 in November, well above economists' forecasts of a reading of -13 and its highest since June 2008.

The export order book balance also rose to +4 from -7, its highest since August 1995. The indexes are normally in negative territory.

Industrial production in Germany has also been strong. From Bloomberg:

Industrial production in Germany, Europe’s largest economy, rose almost three times as much as economists forecast in October, led by demand for investment goods such as machinery.

Production jumped 2.9 percent from September, when it fell a revised 1 percent, the Economy Ministry in Berlin said today. That’s the biggest increase since May. Economists had forecast a gain of 1 percent, the median of 40 estimates in a Bloomberg News survey showed. From a year earlier, output increased 11.7 percent when adjusted for the number of work days, after rising a revised 7.7 percent in September...

A separate report today showed that German exports unexpectedly dropped in October. Sales abroad, adjusted for working days and seasonal changes, fell 1.1 percent from September, when they rose 3 percent, the Federal Statistics Office in Wiesbaden said.

UK retail sales slow but manufacturing accelerates

Economic data from the UK have been mixed recently.

Retail sales slowed slightly, according to a Bloomberg report.

U.K. retail sales climbed in November as higher food-price inflation pushed up values and cold weather boosted demand for clothing and footwear, the British Retail Consortium said.

Sales at stores open at least 12 months, measured by value, rose 0.7 percent from a year earlier, compared with a 0.8 percent gain in October, the London-based BRC said in an e- mailed statement today. Excluding the impact of a sales-tax increase in January, underlying volume sales growth is “virtually zero,” it said.

Shop price inflation also dipped in November, Reuters reports.

British shop price inflation dipped in November as retailers offered discounts in the run up to Christmas, but it is likely to rise in 2011 due to a hike in VAT and expected higher energy costs, data showed on Wednesday.

The British Retail Consortium said shop price inflation had eased in November to 2.0 percent from 2.2 percent in October as food inflation slowed for the first time in five months.

But Reuters also reports better employment growth in November.

Employment for both permanent and temporary staff in Britain grew at its fastest pace in three months in November, though pay growth remained weak, the Recruitment and Employment Confederation said on Wednesday...

The permanent placements index rose to 55.2 in November from 52.6 in October, hitting its highest since August. November's temporary staff billings index also hit a three-month high, increasing to 53.5 from 51.6. Readings above 50 indicate expansion, and those below mean contraction.

And strong growth in manufacturing has helped keep the UK economy growing. Again from Reuters:

Manufacturing output rose twice as fast as anticipated in October but wider industrial production unexpectedly fell, suggesting the pace of economic growth slowed early in the final quarter...

Manufacturing output rose 0.6 percent in October, according to figures from the Office for National Statistics on Tuesday, three times September's gain and the biggest monthly rise since March.

However, sharp falls in mining, utilities and oil and gas extraction pushed industrial output down 0.2 percent on the month after September's 0.4 percent rise, confounding expectations for a 0.3 percent increase...

Britain's GDP grew 0.8 percent between July and September, according to official data, and the National Institute of Economic and Social Research think tank said on Tuesday it thought the economy had grown by 0.6 percent in the three months to November.

That compared with its estimate of a 0.5 percent rise in the three months to October and 0.8 percent in the three months to September.

Elsewhere in Europe, manufacturing has also been strong in Germany. From Bloomberg:

German factory orders rose in October as domestic demand picked up, another sign the country’s economic recovery is broadening.

Orders, adjusted for seasonal swings and inflation, increased 1.6 from September, when they fell 4 percent, the Economy Ministry in Berlin said today. Economists expected a 1.9 percent gain, according to the median of 40 estimates in a Bloomberg News survey. From a year earlier, orders climbed 17.9 percent when adjusted for working days.

East Asia to slow

Emerging economies in East Asia will see robust growth this year but slow next year, according to the Asian Development Bank. AFP/CNA reports:

The Asian Development Bank (ADB) said Tuesday that East Asia's emerging economies will grow 8.8 per cent this year before slowing to 7.3 per cent in 2011 amid concerns about the global economy.

A slowdown is already very evident in East Asia's most developed economy, Japan. From Nikkei:

Japan's composite index of coincident economic indicators for October fell 1.4 points from the previous month to 100.7 (2005=100), according to data released Tuesday by the Cabinet Office.

The index of leading indicators, a barometer of economic conditions several months down the road, slid 1.4 points to 97.2.

The government downgraded its overall assessment of the economy to "stalled," compared with the previous month's assessment that it shows signs of improvement but is at a standstill.

Recovery in US employment weak but continuing

Last week's employment report shows that the economic recovery in the United States is still producing few jobs.

The Labor Department reported on Friday that nonfarm payroll employment rose 39,000 in November, well below the consensus estimate of 150,000 based on a Bloomberg survey of economists. The unemployment rate rose to 9.8 percent from 9.6 percent in October.

This means that almost one and a half year after the recession ended, employment remains well below the level at the beginning of the recession and the unemployment rate remains close to its recession peak of 10.1 percent.

Nevertheless, other data last week suggest that the recovery in employment will at least continue.

Another report from the Labor Department last week showed that although initial claims for unemployment insurance rose 26,000 to 436,000 in the week ending 27 November, the four-week moving average fell 5,750 to 431,000.

The latter series, which had fallen to around 450,000 in the spring but had refused to fall any lower for several months, appears finally to be trending down again. This could be an early indicator of a prospective decline in unemployment.

Reports from the Institute for Supply Management last week also show that the recovery in the economy and employment in particular remains on track.

The ISM's manufacturing PMI fell to 56.6 in November from 56.9 in October while the manufacturing employment index fell to 57.5 from 57.7. However, both remain well above 50, indicating continued expansion in manufacturing activity.

The ISM's non-manufacturing index improved to 55.0 in November from 54.3 in October while the non-manufacturing employment index improved to 52.7 from 50.9, indicating an acceleration in non-manufacturing activity.

So the recovery in employment in the US since the end of the recession has been weak but it is continuing nevertheless.

US employment grows by 39,000

The US employment report produced a big disappointment on Friday. MarketWatch reports:

The U.S. economy added jobs at a much slower pace in November than in October, suggesting that the economy will continue to struggle in coming months.

Nonfarm payrolls rose by 39,000 in November, far lower than the 155,000 gain expected by economists surveyed by MarketWatch and the upwardly revised figure of 172,000 jobs gained in October.

The unemployment rate unexpectedly rose to 9.8% in November from 9.6% in October according to a separate survey of 60,000 households. Economists had been expecting the unemployment rate to remain steady. This is the highest unemployment rate since April.

There were no disappointments though from the other major US economic reports on Friday. From The Wall Street Journal:

The ISM's nonmanufacturing headline purchasing managers' index rose to 55.0 last month from 54.3 in October. Forecasters surveyed by Dow Jones Newswires had expected the November PMI to edge up to 55.0. Readings above 50 indicate expanding activity...

Orders for manufactured goods decreased 0.9% to $420.09 billion, the Commerce Department said Friday. Economists surveyed by Dow Jones Newswires had forecast a 1.1% decline in factory goods in October.

Factory orders over the previous month were revised up to a 3.0% increase, however, versus the initial estimate of a 2.1% gain.

The data from Europe on Friday were positive. Bloomberg reports:

Growth in Europe’s services and manufacturing industries accelerated at a faster pace than initially estimated and retail sales increased more than economists forecast, led by Germany.

A composite index based on a survey of euro-area purchasing managers in services businesses and factories climbed to 55.5 in November from 53.8 in October, London-based Markit Economics said today. It initially reported a gain to 55.4. Retail sales rose 0.5 percent in October, the European Union statistics office in Luxembourg said. Economists forecast 0.2 percent, the median of 19 estimates in a Bloomberg News survey shows...

A gauge of services industries increased to 55.4 from 53.3, Markit said. A reading above 50 indicates expansion.

In the UK, services continued to grow in November but at a slower pace. The Daily Mail reports:

The UK services sector grew slower in November compared to the previous month, new figures have suggested.

The latest Markit/CIPS Purchasing Managers' Index survey showed a marginal decline from 53.2 in October to 53 in November - a reading above 50 indicates growth.

China's services industries, however, saw a sharp slowdown in November. From Bloomberg:

China’s non-manufacturing purchasing managers’ index fell to a nine-month low in November as accelerating inflation eroded service companies’ margins.

The index dropped to 53.2 from 60.5 in October, according to a statement today by the Beijing-based National Bureau of Statistics and the Federation of Logistics and Purchasing. A reading above 50 indicates an expansion. A separate service PMI released by HSBC Holdings Plc fell to 53.1, a near two-year low.

Some cooling in China's economy isn't necessarily unwelcome though. AFP/CNA reports possible further tightening action from policy-makers:

China pledged Friday to tighten monetary policy next year -- a sign that new interest rate hikes are imminent, analysts say, as the world's second-largest economy steps up its battle against inflation.

The ruling Communist party's politburo decided to shift its monetary policy stance from "relatively loose" to "prudent", the Xinhua news agency reported.

US pending home sales jump, ECB continues bond purchases

US economic data on Thursday were pretty good. From Bloomberg:

Pending sales of U.S. existing houses unexpectedly jumped by a record 10 percent in October, indicating the industry at the center of the last recession is stabilizing as the job market improves.

The increase in the number of Americans signing contracts to buy previously owned homes followed a 1.8 percent drop in September, the National Association of Realtors said today in Washington...

The number of applications for jobless benefits averaged 431,000 a week over the month ended Nov. 27, the lowest level since August 2008, Labor Department figures showed. Claims increased by 26,000 last week, more than forecast, to 436,000, after reaching a two-year low.

Investors, however, are keeping a close eye on developments in Europe. Bloomberg reports the latest decisions from the ECB:

The European Central Bank delayed its withdrawal of emergency liquidity measures and bought more government bonds as President Jean-Claude Trichet pledged to fight “acute” financial market tensions.

Under pressure from investors to lead the charge against the spreading sovereign debt crisis, Trichet said the ECB will keep offering banks as much cash as they want through the first quarter over periods of up to three months at a fixed interest rate. As he spoke, ECB staff embarked upon a new wave of purchases, triggering a surge in Irish and Portuguese bonds.

“Uncertainty is elevated,” Trichet told reporters after the ECB’s Governing Council left its benchmark interest rate at 1 percent today. “We have tensions and we have to take them into account.”

The ECB's actions helped steady markets on Thursday, but Europe's sovereign debt problems seem never-ending. From another Bloomberg report:

Greece was warned it could receive a lower credit rating from Standard & Poor’s as proposed European Union rules threaten to hurt bondholders.

Greece’s ‘BB+’ long-term sovereign rating was placed on “CreditWatch” with negative implications, Standard & Poor’s Ratings Services said in a statement today from Madrid. S&P said it is assessing credit implications of the so-called European Stability Mechanism that may govern European Union sovereign bonds beginning in July 2013.

Stocks jump as global manufacturing expands

Markets had a strong showing on Wednesday. From Bloomberg:

Stocks jumped, sending U.S. benchmark indexes to their biggest gains in three months, while the euro and commodities rallied and Treasuries slid amid improving data on the American and Chinese economies and speculation of a larger effort to end Europe’s debt crisis.

The S&P 500 gained 2.2 percent, the most since Sept. 1, as 483 of its stocks advanced as of 4 p.m. in New York. The MSCI Emerging Markets Index jumped 2.2 percent for its biggest gain since Aug. 2. The euro rebounded above $1.31 and Spanish 10-year bonds snapped an 11-day drop, while the rate on 10-year Treasury notes increased 17 basis points to a four-month high of 2.97 percent. Oil and copper advanced more than 3 percent.

Economic data certainly helped markets. Bloomberg reports the US data:

Manufacturing in the U.S. expanded for a 16th consecutive month in November and companies increased payrolls, signs of growing confidence in the economic recovery.

The Institute for Supply Management said its factory index was little changed at 56.6 after a five-month high of 56.9 in October. A reading higher than 50 signals growth. Businesses added 93,000 workers to payrolls in November, the most in three years, according to ADP Employer Services...

The Federal Reserve said today the economy gained strength in 10 of 12 districts as hiring improved, manufacturing expanded and retailers anticipated a stronger holiday shopping season...

A Commerce Department report today showed construction spending unexpectedly increased in October, lifted by the biggest gain in residential projects in six months. The 0.7 percent increase matched the previous months’ gain.

Manufacturing also saw expansion in the euro area, according to another Bloomberg report.

Europe’s manufacturing industries expanded at the fastest pace in four months in November, led by Germany, the region’s largest economy.

A gauge of manufacturing in the 16-nation euro area rose to 55.3 from 54.6 in the previous month, London-based Markit Economics said today. It had previously reported an increase to 55.5 in November. A reading above 50 indicates expansion.

Manufacturing did even better in the UK in November, as Reuters reports.

Manufacturing activity accelerated unexpectedly to a 16-year high in November and employment climbed at a record pace, according to a survey on Wednesday that pointed to a surprisingly robust recovery in the industrial sector.

The Markit/CIPS headline manufacturing Purchasing Managers' Index (PMI) rose to 58.0 in November, its highest since September 1994, and well above October's upwardly revised figure of 55.4. Economists had forecast a modest easing to 54.6.

And while manufacturing continued to grow strongly in countries like China and India in November, other Asian countries saw turnarounds in manufacturing activity. AFP/CNA reports:

China's factories led a strong pick-up in manufacturing activity across Asia in November, surveys showed Wednesday, but soaring raw material costs fuelled expectations for more interest rate hikes...

The HSBC China Manufacturing PMI, or purchasing managers index, rose to 55.3 in November from 54.8 in October.

An official survey released by the China Federation of Logistics and Purchasing (CLFP) also rose to 55.2 in November from 54.7 in October...

In South Korea, the HSBC PMI jumped to 50.23 from October's 20-month low of 46.75, ending six months of contraction.

Taiwanese manufacturing expanded for the first time in four months, with the HSBC PMI rising to 51.7 from 48.6.

In India, manufacturing activity expanded for the 20th straight month in November, rising to 58.4 from 57.2 in October.

Europe's debt woes keep markets down

Investors remain concerned about European sovereign debt. From Bloomberg on Tuesday:

The MSCI World Index of stocks in 24 developed nations lost 0.6 percent at 4:31 p.m. New York time and the Standard & Poor’s 500 Index fell 0.6 percent, trimming its slide from 1.2 percent after President Barack Obama signaled willingness to work with Republicans to extend some Bush-era tax cuts. The euro slid below $1.30 for the first time since September. Costs to insure the debt of Italy, Spain, Portugal and Ireland reached records and yields on Belgium’s government bonds surged.

Stocks, government securities and the euro are being dragged down by concern Portugal and Spain may suffer the fate of Ireland, which had to ask for an 85 billion-euro ($111 billion) rescue package to help bail out its banks. S&P said today it may cut Portugal’s credit ratings on concern the government has made little progress on boosting economic growth to offset the fiscal drag from scheduled budget cuts.

Economic reports from Europe on Tuesday provided little boost for markets. From Bloomberg:

Euro-area consumer prices rose 1.9 percent in November from a year earlier, the European Union statistics office in Luxembourg said in an initial estimate today. The jobless rate increased to 10.1 percent in October, the highest since July 1998, from 10 percent in September.

There were positive reports from the US though. Again from Bloomberg:

The Institute for Supply Management-Chicago Inc. said today its business barometer rose to 62.5 this month, the highest since April, from 60.6 in October. Figures greater than 50 signal expansion. The median forecast of 63 economists surveyed by Bloomberg News projected the gauge would fall to 59.9...

Others reports today showed consumer confidence improved more than forecast and home prices cooled.

The Conference Board’s confidence index increased to 54.1, a five-month high, from a revised 49.9 in October, figures from the New York-based research group showed. Measures of employment and income expectations improved.

However, house price data disappointed.

Home prices in 20 cities rose in September at the slowest pace in eight months, showing the latest slump in sales is destabilizing housing. The S&P/Case-Shiller index of property values climbed 0.6 percent from September 2009, the smallest gain since January, the last time prices declined year over year. The increase was smaller than the 1 percent median forecast in a Bloomberg News survey of economists.

Eurozone confidence rises, Japanese industrial output falls

Confidence in the euro area continued to climb in November. Bloomberg reports:

European confidence in the economic outlook improved to the highest in three years in November as Germany’s export-driven growth helped counter concerns that a spreading sovereign-debt crisis will hurt the recovery.

An index of executive and consumer sentiment in the 16 euro nations rose to 105.3 from 103.8 in October, the European Commission in Brussels said in a statement today. That’s the highest since November 2007. Economists forecast a gain to 105, the median of 26 estimates in a Bloomberg News survey shows.

Still, economic growth is expected to weaken next year. Again from Bloomberg:

Europe’s economy may weaken next year as budget cuts to stem a mounting debt crisis hurt consumer demand and faltering global expansion curbs exports, the European Commission said.

Gross-domestic-product growth in the 16-nation euro region may weaken to 1.5 percent in 2011 from 1.7 percent this year, the Brussels-based commission said in a report published today. While Germany may expand 3.7 percent this year, the economies of Ireland, Greece and Spain will continue to shrink.

Meanwhile, Japan's economy is already seeing a significant slowdown. From Reuters:

Japanese factory output fell in October by the most since February 2009, as slowing exports and the diminishing effects of stimulus-driven consumption cloud the outlook for the fragile economic recovery...

Industrial output fell 1.8 percent in October, government data showed on Tuesday, less than a median estimate for a 3.25 percent fall but marking the fifth straight month of declines.

Manufacturers surveyed by the Ministry of Economy, Trade and Industry expect output to rise 1.4 percent in November and 1.5 percent in December, the data showed...

The Nomura/JMMA Japan Manufacturing Purchasing Managers Index (PMI) rose to a seasonally adjusted 47.3 in November from 47.2 in October, staying below the 50 threshold that separates contraction from expansion for a third month in a row...

Separate government data showed the jobless rate rose to 5.1 percent in October from the previous month's 5.0 percent. Household spending fell 0.4 percent in October from a year earlier, partly due to the end of government subsidies for buyers of environmentally friendly automobiles.

EU announces €85 billion plan for Ireland

The bailout for Ireland takes shape. Reuters reports:

The EU approved an 85 billion euro ($115 billion) rescue for Ireland on Sunday and outlined a permanent system to resolve Europe's debt crisis, in which investors could gradually share the cost of any future default.

Finance ministers from the 16-nation euro zone, anxious to prevent market contagion engulfing Portugal and Spain, unanimously endorsed an emergency loan package to help Dublin cover bad bank debts and bridge a huge budget deficit...

Some 35 billion euros was earmarked to help restructure the shattered Irish banks, of which 10 billion will be an immediate capital injection and the rest a contingency fund. Ireland will contribute 17.5 billion euros of its own cash and pension reserves towards the bank rescue.

The rest of the emergency loans, which Dublin said were granted at an average interest rate of 5.8 percent, will help cover the giant hole the banks have blown in public finances. The IMF will contribute 22.5 billion euros.

Japanese exports slow, consumer prices decline

The relatively weak run of economic data from Japan recently is continuing.

A report on Thursday showed that the export recovery is stalling. From Bloomberg:

Japan’s export growth slowed more than forecast in October, weakening the boost from trade that has led the nation’s recovery from its deepest postwar recession.

Overseas shipments increased 7.8 percent from a year earlier, the Finance Ministry said in Tokyo today. The median estimate of 21 economists surveyed by Bloomberg News was for a 10.7 percent gain...

Imports climbed 8.7 percent in October from a year earlier and the trade surplus widened to 821.9 billion yen, today’s report showed. Seasonally adjusted, exports were unchanged and imports rose 0.7 percent from September.

Meanwhile, the country remains in deflation. From Bloomberg today:

Japan’s consumer prices fell for a 20th month in October, with declines moderating after the government raised tobacco taxes.

Consumer prices excluding fresh food fell 0.6 percent from a year earlier after dropping 1.1 percent in September, the statistics bureau said today in Tokyo. The government’s Oct. 1 tax increase, which boosted the cost of cigarettes by a third, added 0.28 percentage point to the figure, the bureau said.

Stocks rally amid mixed data

Markets rebounded on Wednesday but investors remained concerned about European sovereign debt. Bloomberg reports:

Stocks rallied, driving the MSCI World Index up from a five-week low, after U.S. jobless claims declined to the fewest since 2008 and German business confidence improved. Yields on Treasuries and Irish bonds increased and oil surged.

The MSCI World advanced 0.8 percent at 4 p.m. in New York. The Standard & Poor’s 500 Index added 1.5 percent to 1,198.35, ending a two-day slump. Irish 10-year yields soared 45 basis points to 8.86 percent, while those on Treasuries of similar maturity jumped to the highest in four days. Oil surged the most in four months...

The difference in yield, or spread, between Ireland’s 10- year debt and bunds widened 29 basis points to 615 basis points, according to Bloomberg generic data. Portugal’s 10-year yield increased 11 basis points to 7.00 percent.

Economic data released on Wednesday were mixed.

In Germany, Bloomberg reports that business confidence surged to a record high in November.

The Munich-based Ifo institute said its business climate index, based on a survey of 7,000 executives, rose to 109.3 from 107.7 in October. That’s the highest since records for a reunified Germany began in 1991. Economists predicted a decline to 107.5, according to the median of 42 forecasts in Bloomberg News survey.

However, industrial orders in the euro area were down in September, according to another Bloomberg report.

European industrial orders slumped the most in almost two years in September, suggesting weaker global growth and a stronger euro are starting to hurt exports.

Orders in the 16-nation euro area dropped 3.8 percent from August, when they rose 5.1 percent, the European Union’s statistics office in Luxembourg said today. That’s the biggest plunge since December 2008 and sharper than the 2.5 percent drop forecast by economists in a Bloomberg News survey. Orders rose 14 percent from September 2009.

The data from the US were also mixed. Again from Bloomberg:

Americans increased spending for a fifth month in October and filed the fewest unemployment claims in more than two years last week, pointing to strength in the largest part of the economy as the fourth quarter began.

Household purchases advanced 0.4 percent after a 0.3 percent gain in September that was larger than previously estimated, the Commerce Department reported today in Washington. Incomes climbed 0.5 percent. Jobless claims fell by 34,000 to 407,000 in the week ended Nov. 20, Labor Department figures showed...

The Thomson Reuters/University of Michigan final index of November consumer sentiment increased to 71.6, the highest since June, from 67.7 a month earlier. The preliminary November figure was 69.3. Economists projected a reading of 69.5...

Demand for so-called durable goods dropped 3.3 percent after a revised 5 percent jump in September that was larger than previously estimated. Purchases of new homes decreased 8.1 percent to a 283,000 annual rate. Sales reached a 275,000 pace in August, the lowest since data collection began in 1963.

Markets shaken as fighting breaks out in Korea

North Korean artillery blazed on Tuesday and markets got pounded. Continuing concerns over European sovereign debt didn't help.

Bloomberg reports the market action:

Stocks sank, dragging the MSCI Emerging Markets Index down the most in five months, while the dollar and the Swiss franc rallied as fighting broke out between North and South Korea and concern grew Europe’s debt crisis will spread. Copper slid as China’s banks approached lending limits.

The MSCI gauge of stocks in developing nations lost 2.6 percent and the Standard & Poor’s 500 Index slid 1.4 percent at 4 p.m. in New York. The dollar and franc appreciated against most peers. South Korean won forwards slipped the most in six months. Ten-year Treasury yields decreased 4 basis points, while credit default swaps protecting European government debt rose to a record. Copper, lead and zinc slumped, while gold advanced.

However, economic reports on Tuesday were once again quite positive.

Purchasing managers indices in the euro area jumped in November. From Bloomberg:

Growth in Europe’s services and manufacturing industries unexpectedly accelerated for the first time in four months in November as companies weathered the debt crisis and cooling global growth.

A composite index based on a survey of euro-area purchasing managers in both industries advanced to 55.4 from 53.8 in the previous month, London-based Markit Economics said today in an initial estimate. A reading above 50 indicates expansion.

In the US, third quarter growth has been revised upward. Again from Bloomberg:

The U.S. economy grew more than previously calculated in the third quarter, led by stronger consumer spending and fueled by labor income gains that may stoke demand into 2011.

The revised 2.5 percent increase in gross domestic product compares with a 2 percent estimate issued last month and a 1.7 percent rise in the second quarter, figures from the Commerce Department showed today in Washington. Consumer purchases rose at the fastest pace since the last three months of 2006.

The Federal Reserve, however, recently made revisions to its projections in the opposite direction. From Reuters:

A weaker economic outlook prompted Federal Reserve officials to consider more radical steps to aid the economy before settling on $600 billion in bond purchases earlier this month...

Looking toward the future, Fed officials' estimates for growth in 2011 ranged from 3.0 percent to 3.6 percent, down considerably from June estimates of 3.5 percent to 4.2 percent. Unemployment will remain close to 9.0 percent for much of next year and could still be above 8.0 percent at the end of 2012.

Continuing weakness in the US housing market no doubt was a factor that Fed officials took into account. From Bloomberg:

Sales of existing homes fell more than forecast in October as foreclosure moratoriums and a lack of credit disrupted the U.S. housing market.

Purchases decreased 2.2 percent to a 4.43 million annual rate from 4.53 million in September, the National Association of Realtors said today in Washington. Economists projected sales would decline to a 4.48 million pace, according to the median forecast in a Bloomberg News survey. The median price fell 0.9 percent from a year earlier.

Chicago Fed index and eurozone consumer confidence improve

Economic data continue to come out positive.

The Chicago Federal Reserve reports that its national activity index showed a pick-up in US economic activity in October.

Led by improvements in production- and employment-related indicators, the Chicago Fed National Activity Index increased to –0.28 in October from –0.52 in September. Three of the four broad categories of indicators that make up the index made small positive contributions in October, while the consumption and housing category continued to make a large negative contribution.

Another positive report came from Moody's, which reported that US commercial property prices rose 4.3 percent in September.

In Europe, while investors remain nervous about sovereign debt issues, consumers became slightly more confident in November. Bloomberg reports:

European consumer confidence unexpectedly rose in November, suggesting the region’s recovery may be weathering government budget cuts.

An index of consumer sentiment in the 16-nation euro region increased to minus 9.5 from a revised minus 10.9 in October, the Brussels-based European Commission said today in an initial estimate today. That’s the highest since December 2007. Economists had forecast a reading of minus 11, the median of 20 estimates in a Bloomberg News survey showed.

Ireland gets bailout, China continues inflation fight

It was a relatively eventful weekend.

For financial markets, the most significant event was a bailout for Ireland. Reuters reports:

The EU and IMF agreed on Sunday to help bail out Ireland with loans to tackle the country's banking and budget crisis in a move aimed at protecting Europe's wider financial stability.

Ireland, facing widespread public anger over its handling of the crisis, formally requested the aid on Sunday evening.

"The European authorities have agreed to our request," said Prime Minister Brian Cowen. "I expect that agreement to be finalized shortly, within the next few weeks."

The size of the rescue by European authorities and the International Monetary Fund has yet to be negotiated but is likely to be smaller than Greece's 110 billion euro ($150 billion) bailout last May.

Some details of the bailout can be found here.

Meanwhile, China announced additional inflation-fighting measures. AFP/CNA reports:

China on Sunday announced a further series of measures to rein in rising commodity prices as it steps up efforts to combat rapidly rising inflation, state media said Sunday.

The State Council, China's Cabinet, ordered local governments to boost agricultural production, stabilise supplies and reduce prices, the official Xinhua news agency reported, citing a seven-page document.

It also instructed local officials to ensure oil, gas, coal, and power supplies were sufficient and provide temporary subsidies, Xinhua said.

Local authorities were also ordered to coordinate social-security programmes to provide a gradual rise in basic pensions, unemployment insurance and minimum wages.

The new order comes a day after China said it would will increase grain supplies, open up more land for planting vegetables and crack down on hoarding.

China raises reserve requirement again

China did it again on Friday. From AFP/CNA:

China's central bank on Friday said it would raise the amount of money that lenders must keep in reserve as officials step up efforts to contain rising inflation and soaring housing costs.

The People's Bank of China said in a one-line statement on its website that the reserve ratio would be raised by 50 basis points, effective November 29.

This time, stock markets largely managed to shrug it off although commodities were hit again. From Bloomberg:

Commodities sank after China told banks to set aside more reserves in an effort to curb inflation, while the euro gained amid prospects for a financial rescue for Ireland. U.S. stocks advanced after Nike Inc. increased its dividend and earnings at technology companies topped estimates.

The S&P GSCI Index of commodities tumbled 0.9 percent at 4 p.m. in New York to extend a weekly slump to 2.8 percent, its biggest slide since August. The euro climbed against 14 of 16 major peers. The Standard & Poor’s 500 Index rose 0.3 percent to 1,199.73, erasing an earlier 0.6 percent slide. Irish bonds reversed a rally as Allied Irish Banks Plc said its reliance on funding from central banks tripled, underscoring the nation’s need for a financial rescue.

Meanwhile, Jennifer Thomson at FT Alphaville brings us a warning from Société Générale’s Dylan Grice of the risk in China.

So long as China’s credit growth continues at its current pace, aided by the liquidity the Fed is flooding world markets with, and encouraged by artificially low interest rates, the primary risk EMs face today remains that of a bubble.

Markets rise on positive reports

Markets bounced back on Thursday. Bloomberg reports:

Stocks surged and commodities snapped a two-day retreat as Ireland moved closer to a European Union-led financial bailout and data on jobless claims and manufacturing bolstered optimism in the U.S. economy. General Motors Co. rallied as it returned to the stock market.

The MSCI World Index gained 1.7 percent at 4:28 p.m. in New York and the Standard & Poor’s 500 Index jumped 1.5 percent, the biggest advances for both in two weeks. The euro climbed 0.8 percent against the dollar. Costs to insure Ireland’s bonds from default sank. A drop in Treasuries sent the 10-year note yield up two basis points to 2.90 percent. Silver rose 5.2 percent, gold climbed 1.2 percent and oil added 1.8 percent.

Economic data on Thursday were quite positive. Bloomberg reports that the US economic recovery is accelerating.

The index of U.S. leading indicators rose for a fourth consecutive month, manufacturing surged in the Philadelphia area and jobless claims climbed less than forecast, signaling the world’s largest economy is accelerating...

The Conference Board’s gauge of the outlook for the next three to six months climbed 0.5 percent for a second consecutive time, capping the biggest back-to-back gains since February- March, the New York-based research group said today...

The Philadelphia Fed’s general economic index rose to 22.5, the highest level since December, from 1 a month earlier...

Applications for unemployment insurance payments rose by 2,000 to 439,000 in the week ended Nov. 13, Labor Department figures showed. The four-week moving average, a less volatile measure than the weekly figures, dropped to 443,000, the lowest level since September 2008.

There were also positive reports from the UK, with retail sales recovering in October and the Confederation of British Industry survey's total order book balance improving in November.

Still, the OECD has cut the global growth outlook for next year. Bloomberg reports:

The Organization for Economic Cooperation and Development cut its global growth forecast for next year, predicting a “soft spot” as stimulus spending fades before investment spurs a revival in 2012.

The global economy will expand 4.2 percent next year instead of the 4.5 percent predicted in May, the Paris-based organization said today in its semi-annual Economic Outlook. Growth will recover to 4.6 percent in 2012, it said.

US inflation lower than expected as housing starts fall

Bloomberg reports that US consumer prices excluding food and energy rose in October by the smallest on record.

The cost of living rose less than forecast in October and housing starts dropped, validating Federal Reserve Chairman Ben S. Bernanke’s decision to give the U.S. economy another dose of monetary stimulus.

Consumer prices excluding food and fuel, the gauge followed by central bankers, increased 0.6 percent from October 2009, the smallest gain in year-over-year data going back to 1958, the Labor Department said today in Washington...

The consumer-price index increased 0.2 percent in October from the previous month, less than the 0.3 percent gain projected by the median forecast of 80 economists surveyed by Bloomberg News. Excluding food and fuel, so-called core costs were little changed for a third consecutive month.

It is apparently difficult to get much inflation when the economy is still feeling the effects of the housing market crash, as suggested by October housing starts data.

Housing starts fell to a 519,000 annual rate, down 12 percent from a revised 588,000 in September that was lower than previously estimated, the Commerce Department report showed. Work on multifamily units, which is often volatile, plunged 44 percent, overshadowing a 1.1 percent drop in the single-family component...

Building permits, a sign of future activity, rose 0.5 percent to a 550,000 rate, less than forecast, from 547,000 in September. The stabilization in applications makes it less likely that construction will fall much more in coming months.

Shanghai leads global stock markets down on inflation concerns

South Korea raised interest rates on Tuesday but the threat of China acting to rein in inflation had the bigger impact on markets. Bloomberg reports:

Global stocks fell for a seventh day, the longest streak since January, and commodities slid amid concern that the debt crisis in Ireland and Greece is worsening and that China will act to slow its economy. U.S. Treasuries snapped a two-day plunge and the dollar rallied.

The MSCI World Index slid 1.9 percent at 4 p.m. in New York, the most since Aug. 11. The Standard & Poor’s 500 Index sank 1.6 percent and the Shanghai Composite Index lost 4 percent. Ten-year Treasury yields fell 12 basis point to 2.84 percent after a 31-point gain over the past two days, the biggest back-to-back rise since January 2009. Irish 10-year yields increased 28 basis points. The Dollar Index rose 0.9 percent, while Nickel and wheat led commodities lower...

The Shanghai Composite Index fell to the lowest level in a month as PetroChina Co. and Jiangxi Copper Co. plunged more than 6.5 percent on concern tighter monetary policy will curb demand for commodities. The China Securities Journal reported that the country will introduce measures to control rising food prices in the world’s fastest-growing major economy.

South Korea’s Kospi Index of shares lost 0.8 percent, while the won strengthened 0.4 percent against the dollar. The Bank of Korea raised the seven-day repurchase rate by 0.25 percentage point to 2.5 percent today, the second increase this year, and dropped a reference to keeping borrowing costs “accommodative.”

Asia is not the only place concerned about inflation. The UK has also been experiencing excessive inflation. From Reuters:

The Office for National Statistics said on Tuesday that annual consumer price inflation rose to 3.2 percent last month, more than a percentage point above the Bank's 2 percent target. It has now exceeded 3 percent every month since March.

Analysts had expected it to stay at 3.1 percent and sterling shot up around half a cent against the dollar as traders bet the stubbornly high inflation figures meant the Bank of England's Monetary Policy Committee would not pump more stimulus into the economy.

High inflation isn't stopping the BoE from contemplating quantitative easing though.

However Governor Mervyn King, forced by his remit to write a fourth letter of explanation this year as to why inflation is so high, stressed the Bank could still do more quantitative easing if it were judged necessary...

King said the rise in inflation was likely temporary and that spare capacity in the economy would bring the CPI rate down in the medium-term.

The euro region also saw inflation accelerate in October. Bloomberg reports:

European inflation accelerated to the fastest in almost two years in October, led by surging energy costs.

Euro-area consumer prices rose 1.9 percent from a year earlier after increasing 1.8 percent in September, the European Union statistics office in Luxembourg said today. That’s the fastest since November 2008 and in line with an estimate published on Oct. 29. Energy prices rose 8.5 percent in October from a year earlier, the biggest gain since May.

US producer prices, though, rose less than expected in October. From MarketWatch:

U.S. producer prices rose in October at a pace slower than economists had anticipated as prices for cars and trucks declined, according to government data released Tuesday.

Overall, producer prices increased, up a seasonally adjusted 0.4% as energy prices rose, the Labor Department reported.

Higher inflation in the near future cannot be ruled out though.

The government also reported that prices for intermediate goods rose 1.2% in October, while prices for crude goods gained 4.3%. Over 12 months, prices for intermediate goods were up 6.4%, while prices for crude goods were up 17%.

Still, the Federal Reserve's industrial production report did not suggest much inflationary pressure in the economy. From Reuters:

U.S. industrial production was flat in October, Federal Reserve data showed on Tuesday...

Manufacturing edged up 0.5 percent, its biggest gain since July, but utilities output dropped 3.4 percent because unseasonably warm temperatures reduced demand for heating.

The capacity utilization rate, a measure of slack in the economy, was flat at 74.8 percent. That was up 6.6 percentage points from a June 2009 low but remained 5.8 points below its 1972-2009 average.

In other US data, the National Association of Home Builders/Wells Fargo housing market index rose to 16 in November from a downwardly revised 15 reading in October.

US retail sales and eurozone exports rise

US retail sales were surprisingly strong in October. Reuters reports:

Sales at U.S. retailers posted their strongest gain in seven months during October, adding to signs the economy was regaining strength after hitting a soft patch in the summer.

The Commerce Department said on Monday total retail sales rose a surprisingly strong 1.2 percent, nearly double market expectations, as consumers snapped up motor vehicles and building materials...

Although the New York Federal Reserve's "Empire State" general business conditions index unexpectedly fell to -11.1 in November from 15.7 in October, economists were little worried...

A second report from the Commerce Department showed business inventories rose 0.9 percent to $1.40 trillion, the highest level since March 2009, after increasing by a revised 0.9 percent in August.

Also showing some resilience is eurozone exports. Again from Reuters:

The euro zone had a bigger than expected trade surplus in September, data showed on Monday, as export growth outpaced the rise in imports year-on-year.

The European Union's statistics office Eurostat said the 16 countries using the euro had a trade surplus with the rest of the world of 2.9 billion euros in September, up from 1.4 billion last year and a deficit of 5 billion euros in August.

Eurostat said unadjusted exports grew 22 percent year-on-year in September, while imports were up 21 percent.

Adjusted for seasonal swings, exports grew 0.6 percent month-on-month in September while imports fell 2.5 percent against August.

Japanese economy accelerates in third quarter

The Japanese economy did surprisingly well in the third quarter of 2010.

The Cabinet Office reported today that real Japanese gross domestic product grew 0.9 percent in the third quarter, faster than the 0.4 percent growth in the second quarter as well as the 0.6 percent growth estimated by economists surveyed by Bloomberg.

This means that the Japanese economy was the best performer among the largest developed economies in the third quarter, at least according to the latest available official estimates.

Percentage change in real GDP
	2009	2010
	Q4	Q1	Q2	Q3
United States	1.2	0.9	0.4	0.5
Japan	1.0	1.6	0.4	0.9
Germany	0.3	0.6	2.3	0.7
France	0.6	0.2	0.7	0.4
United Kingdom	0.4	0.4	1.2	0.8
Italy	-0.1	0.4	0.5	0.2

The third quarter was the first time since the start of the recovery that net exports did not contribute to Japanese economic growth. Exports grew 2.4 percent but this was offset by imports that grew 2.7 percent.

Instead, a 1.2 percent jump in household consumption provided the bulk of GDP growth in the third quarter.

While the third quarter growth maintains Japan's economic recovery, real GDP remained substantially below the peak reached in the first quarter of 2008 though.

Already, however, the Bank of Japan has warned that the economic recovery is "pausing" (see "BoJ says Japanese recovery pausing").

Despite the growth of the past few quarters, a full recovery of the Japanese economy does not look like a near-term prospect.